Filed under: Products and services, Competitive strategy, Best Buy (BBY)

The Wall Street Journal reports that Best Buy (NASDAQ: BBY) is test piloting the sale of used video games at its Canadian stores, with an eye toward expanding the program into the United States. While the company says it’s too early to say whether the plan will take off, Best Buy’s head of international relations said on a conference call that “We’re very, very, very hopeful that this will be another avenue of increasing our relationship with the consumer generally.”

What a nice way of saying “making more money.” The used game business carries substantially better margins than retailing new games, and the frequency of trade-ins reduces inventory costs. Right now the leader in used games is GameStop (NYSE: GME), but you have to think a big push from Best Buy could take some market share in this profitable category. Alternative GameStop’s small size and more knowledgeable staff could make it more appealing to consumers than Best Buy — the two stores have locations in many of the same malls.

Even after its recent price decline, GameStop investors should be taking a hard look at the durability of the company’s competitive advantage. The company has so far done exceptionally well competing with big box retailers, a testament to tremendous management and a strong concept. But it’s a battle that’s likely to continue and, looking further into the future, you have to wonder whether higher-quality digital delivery of games could hurt the company.

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This entry was posted on Thursday, June 19th, 2008 at 2:23 am and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.